Apple to announce earnings amid expectations of lower profit

Staff at an Apple store hold a meeting before they open their doors on the day the iPhone 5 went on sale to the public, in central Sydney September 21, 2012. (Tim Wimborne/Reuters)

CUPERTINO, Calif. -- After months of deepening doom and gloom over Apple's falling stock price, increased global competition for its products and questions over whether it can quickly come up with another blockbuster, things promise to heat up big-time Tuesday as the company announces its latest quarterly earnings.

Analysts aren't expecting champagne corks to be popping at Apple's headquarters at One Infinite Loop in Cupertino. Its quarterly profit is projected to shrink for the first time in a decade, hurt by lower profit margins on products like the iPad Mini, along with slower growth in sales of its all-important iPhone.

Here's how Chris Whitmore with Deutsche Bank Equity Research described the current "narrative" on the world's most valuable tech company: "The news cycle on Apple has turned decidedly negative following a disappointing iPhone 5 cycle, the Maps snafu, iCloud issues ... and (the) general perception that Apple has lost some of its mojo."

He's not alone in wondering how that mojo went missing. According to Bloomberg, 14 analysts have cut their estimates for Apple in the past four weeks, as shares in the world's most valuable technology company continue their slide from a September record high of more than $700 a share to Monday's close of $398.67. And with competition from Samsung weighing on the stock, along with investor discontent over Apple's reluctance to give back more of its cash to shareholders in the form of dividends, the guy feeling the most heat of all is CEO Tim Cook.

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"You have to wonder what the board is thinking right now about Cook's ability to lead this company to where it needs to be," said Laurence Balter, an analyst at Oracle Investment Research. "There are three legs to a stool, and for Apple it's its customers, its employees and its shareholders, the people who actually own the company. And the owners of Apple are in pain."

Like other analysts, Balter thinks Apple needs to quickly share more of its $137 billion in cash reserves with shareholders. Some analysts also are calling for a major shake-up of Apple's top management, pointing out that while Cook may be an operations genius, he is no Steve Jobs when it comes to driving innovation.

"A great move would be to bring in Jony Ive as chairman," said Balter, referring to the design guru behind the iPhone and iPad. Balter would like to see Cook as chief operating officer alongside CEO Ives. "Cook was so complimentary to Jobs because his strength in supply-chain management was a perfect fit with Jobs' creative genius as a visionary designer. And Ives is the only guy at Apple who can now fill Jobs' shoes."

But some say it's too early to consider replacing Cook as CEO. As Dan Niles, a senior portfolio manager at AlphaOne Capital Markets, told CNBC on Monday, Cook "took over as CEO when the stock was in the $300 range, the stock is still higher than when he took over. You have to put this in perspective, Apple didn't run the stock up to $700, stupid investors put the stock up at $700. You can't really blame the CEO for that, they are still making more money than they were."

Tuesday's report may show that fiscal second-quarter net income declined 18 percent to $9.53 billion, or $10.02 a share, according to analysts' estimates compiled by Bloomberg. Revenue is projected to show a rise of 8 percent to $42.4 billion, the slowest growth rate since 2009.

Regardless of what numbers Apple puts up for its most recent quarter, the near future could get even darker if it fails to exhibit more of the mind-boggling innovation that became commonplace under Jobs, propelling Apple to supercharged growth for much of the past decade.

"We'll likely see strong revenues and weaker margins" Tuesday, said analyst Van Baker with Gartner Research, noting that strong sales of the iPhone 4 and iPhone 4S were cutting into sales of Apple's more profitable iPhone 5. "If your profit margins are weaker, your profits will be weaker. Apple's been hammered really bad already by investors, and if they announce profits below street expectations, they could get slammed even harder."

Contact Patrick May at 408-920-5689; follow him at Twitter.com/patmaymerc.

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